Summary by Maria Du
Master of Accountancy Program
University of South Florida, Summer 2002
In this article, the Cooper addresses the important role that Frederick Taylor played in the scientific management movement and the development of cost accounting. Although Taylor’s standard costing systems theory applied very well to the workforce over a century ago, the assumptions underlying Taylor's system are quite different from the assumptions underlying modern cost management.
There is no doubt that cost management systems are undergoing a revolution in thought and practice. Much of this change is due to the recent changes in manufacturing technology, international competition, and philosophy. As a result, cost management systems are changing as well. New concepts and procedures, such as activity-based costing and just in time, have been introduced, and many traditional approaches have been challenged.
Summary of Scientific Management Assumptions
The author identified four key assumptions related to scientific management and compared them to the assumptions applicable to modern cost management. Giving these assumptions, the author described how cost management has been developed accordingly and Taylor’s reactions to the revised assumptions under modern cost management:
1. Key Workforce Assumptions: At the turn of the 20th century, most manufacturing workers were
immigrants with farming backgrounds and had very little education. It was assumed
that each specialized worker could only handle a few simple tasks and should
not be required to think. This idea worked well in mass production manufacturing at that time.
2. Ensuring Centralized Control: It was assumed that manufacturing workers worked like robots with little creativity. Taylor introduced the concept of a central office which controlled all manufacturing activities.
3. Ensuring Constant Performance: Taylor believed that there was only one best way to perform a task (standard); therefore, variances needed to be analyzed to minimize the gap between actual and standard performance.
4. Providing Individual Pay for Performance: Taylor was not in favor of time based pay since he believed this pay scheme was inefficient and failed to reward productivity. As a result, he introduced a differential-piece-rate scheme, in which low productivity workers received little pay but high productivity workers received a reasonable level of pay based on the higher piece rate multiplied by a greater number of units.
Taylor’s theory worked well for the manufacturing industry in the mid-nineteen century. However, changes in education, modern competition, and management practices created an entirely different set of assumptions for modern cost management.
1. Managing a Highly Educated Workforce: Under modern management, general-purpose workers can perform multiple
tasks with self-motivation. They have become generalist rather than specialist.
2. Leveraging the Skills of Knowledge Workers: Employees are empowered to become knowledgeable workers, and to achieve higher productivity.
3. Accepting the Need for Continuous Improvement: This concept clearly contradicts Taylor’s believe that there is only one best way to perform task. The assumption today is that there is always room for improvement and the work force is expected to continuously find ways to improve performance.
4. Linking Pay to Group Performance: In modern industry, the factory is not designed around individuals but around the team; therefore, reward systems are based on the overall performance of the team, and the company's performance in the stock market.
The table below provides a comparison of assumptions underlying Taylor's worldview and the modern cost management worldview.
|Workforce||Uneducated, low value, interchangeable and motivated by piece rates and fear of termination.||Highly educated valuable resource and motivated by self respect and respect from the team.|
|Type of Control||Centralized||Empowered Knowledge Workers|
|Performance||Constant based on the one best way||Based on Continuous Improvement|
|Type of Incentives||Individual Pay Based on a Piece Rate||Group Pay Based on Group Performance|
Changes in Taylor’s Theory
If Taylor could see what is happening now, he might be a little surprised by the changes of modern cost management, however, he might fully support activity-based costing (ABC) and target costing. He might have a hard time accepting the interview techniques that simply capture the existing practice since they are often used to establish the activity costs. Taylor would not understand why there isn’t much variance analysis in modern ABC systems.
There is no doubt that Taylor had the greatest impact on the scientific management movement. He developed management approaches in a world in which levels of competition were lower and companies produced only a limited range of products. He would be fascinated by mass customization and global competition. In the long run, Taylor would definitely adapt and come to accept modern cost management theory.
In Taylor’s time, employees were viewed as interchangeable and of low value; however, today the workforce is considered to be a valuable asset that needs to be nurtured and empowered. Current modern cost management is not superior to Taylor’s theory, it is just different and reflects the times in which we live. As the environment changes, our worldview must change to prevent impeding our own progress and the progress of others.
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